Natural gas prices hit two-month low

Prices close with a 4.5% loss; crude recovers

SAN FRANCISCO (CBS.MW) - Natural gas futures fell as much as 7 percent to their lowest level in two months Thursday, with most traders still seeing inventories of the heating fuel as adequate for the winter, despite a bigger-than-expected fall in last week's stocks.

Crude prices also dropped to a five-week low on the back of a significant climb in inventories, but recovered most of their losses by the close.

"Keep in mind that we are running out of winter, not natural gas," said Michael Armbruster, an analyst at Altavest Worldwide Trading. "We are adequately stocked for the season," he said.

The Energy Department Thursday said natural-gas stocks were down 236 billion cubic feet for the week ended Jan. 30 -- a bigger fall than most analysts had expected -- but prices for the heating fuel still moved lower.

Natural gas for March delivery fell by 25.4 cents to close at $5.40 per million British thermal units. The session's intraday low of $5.25 is the lowest level seen since Dec. 2.

The government data marked the "largest draw this year and more importantly for the heating season," said Thorsten Fischer, an economist at Economy.com in a weekly update.

Still, the tally showed stocks at 1.827 trillion cubic feet, up 306 billion from the year-ago level, and up 60 billion from the five-year average.

So "traders who bought ahead of [the] report, knowing that last week was cold, are getting snowed under by the bigger picture that natural gas supplies have held up this winter much better than was expected," said Todd Hultman, president of commodity information and research provider, Dailyfutures.com.

But Agbeli Ameko, a managing partner at energy-forecasting firm, Enercast Inc. said that if the weather remains cold, the market is "on track" to break below the 1 trillion cubic foot level.

"This market is very irrational on both the up and downside as it does not seem the fundamentals are even factored in," he said. "That being said, this could be a big opportunity for traders who can weather this storm."

He expects next week's Energy Department report, which covers data for the week ended Feb. 6, to show a 202 billion cubic foot decline in natural-gas stocks.

Oil touches five-week low then recovers

Hefty gains in U.S. crude inventories took oil futures to a five-week low Thursday, but prices ended only modestly lower.

Crude for March delivery traded as low as $32.20 per barrel on the New York Mercantile Exchange, a level not seen since Dec. 31. It closed down 2 cents at $33.08 per barrel.

March heating oil also fell by 0.75 cent to close at 88.22 cents per gallon -- trading at levels it hasn't seen since late December. March unleaded gas, however, rose by 2.01 cents to end at $1.0058 per gallon.

The increase in crude stocks "took our crude-oil supply from a [more than] 20-year low to back above the critically watched 270 million barrel minimum operating mark," said Phil Flynn, a senior analyst at Alaron Trading.

On Wednesday, the American Petroleum Institute reported a 6.3 million-barrel climb in crude inventories for the week ended Jan. 30. It pegged total stocks at 274.5 million barrels -- back above the 270 million level the government sees as adequate to continue normal refinery operations.

The Energy Department, which delayed its data by two-and-a-half hours Wednesday to allow for "verification," said stocks climbed by 7.9 million barrels total 271.6 million barrels, or 0.6 percent below the level of a year ago.

"A whopper crude build of 7.9 million barrels is what the DOE couldn't believe and had to double check -- hence the delay," said Flynn.

Wednesday's reports also showed that distillate stocks fell as expected last week.

Distillate supplies were down 4.8 million to 128.8 million barrels, the API said. The government pegged the total at 124.2 million barrels, and said supplies were down 6.8 million for the week.

Motor gasoline stocks rose 3.7 million to 205.2 million barrels, according to the API, but fell by 400,000 barrels to 205.6 million barrels, according to the government figures.

OPEC keeps prices in check

Meanwhile, traders continued to debate the outcome of OPEC's meeting this Tuesday.

Members of the oil-producing cartel are set to discuss supplies and production for the second quarter. But so far, OPEC has said it's not inclined to cut production as is usually done around this time of year in anticipation of lower heating demand in the second quarter.

Iran's Oil Minister Bijan Zanganeh said Thursday that OPEC was unlikely to change its production quota of 24.5 million barrels per day at the Feb. 10 meeting in Algeria, but it could consider cutting output at the next meeting on March 31, according to Michael Fitzpatrick, an analyst at Fimat USA.

Still, Fitzpatrick warned that the fall in crude prices could "slow ahead" of the meeting.

In the equities market on Thursday, oil-service shares moved narrowly lower, with the Philadelphia Oil Service Index
OSX, +0.91%
reflecting the weakness. See Energy Stocks.

Also on Nymex, gold futures dulled, but remained in a tight, $7 trading range for a fifth session. See Metals Stocks.

Tracking the commodities sector as a whole, the Reuters/CRB Index rose 0.3 percent to 260.6.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.